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IRS Releases Pension Smoothing Guidance for Single-Employer Pension Plans

The Highway and Transportation Funding Act of 2014 (“HATFA”) extended for five years the funding stabilization provisions for single-employer defined benefit pension plans that were included in MAP-21. The IRS recently released Notice 2014-53 providing guidance on the funding stabilization rules after the passage of HATFA. The Notice, among other things, provides that a plan sponsor may irrevocably elect to defer, until the first plan year beginning on or after January 1, 2014, the use of the HATFA rates, either for all purposes or solely for purposes of Internal Revenue Code (“Code”) Section 436 funding-based limits on benefits and benefit accruals. The deferral requires the plan sponsor to provide written notice to the plan’s enrolled actuary and plan administrator by the later of (i) the deadline for filing the plan’s 2013 Form 5500, including extensions, or (ii) December 31, 2014. However, an election to defer the plan’s use of the… Continue Reading

Court Holds that Benefit Denial Notices Must Include Time Limits for Judicial Review

In the case of Moyer v. Metropolitan Life Ins. Co., the U.S. Court of Appeals for the Sixth Circuit held that a notice of benefit denial under ERISA must include not only a statement of the claimant’s right to judicial review of the benefit denial, but also any associated time limits for filing a claim for judicial review. Moyer was a participant in an employer-sponsored long-term disability plan that was subject to ERISA (the “Plan”). MetLife was the designated claims fiduciary under the Plan. MetLife denied Moyer’s claim for benefits and his subsequent internal appeal of that denial. Nearly four years later, Moyer sued MetLife for the denied benefits under Section 502 of ERISA. The Plan document specified a three-year limitations period for filing such a lawsuit, but neither MetLife’s benefit denial notice to Moyer nor the Plan’s summary plan description (“SPD”) included any such limitations period. The district court… Continue Reading

IRS Releases Draft Instructions for ACA Reporting Forms

The Internal Revenue Service (the “IRS”) released draft instructions for the forms that employers will use to report certain information required by the Affordable Care Act (the “ACA”).  Draft instructions have been released for Forms 1095-C (Employer-Provided Health Insurance Offer and Coverage), 1094-C (Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns), 1095-B (Health Coverage), and 1094-B (Transmittal of Health Coverage Information Returns).  Large employers (i.e., those with at least 50 full-time employees or equivalents) will use Forms 1095-C and 1094-C, while small employers offering “minimum essential coverage” to their employees will use Forms 1095-B and 1094-B.  Draft versions of these forms were released by the IRS in July.  Although these ACA reporting forms will be required for the first time in early 2016 (to report information related to the 2015 calendar year), the instructions provide that employers may voluntarily report information pertaining to the 2014 calendar year in… Continue Reading

EEOC Sues Employer Over “Involuntary” Wellness Program

The U.S. Equal Employment Opportunity Commission (the “EEOC”) recently sued Orion Energy Systems, Inc. (“Orion”), a Wisconsin employer, for allegedly violating the Americans with Disabilities Act of 1990, as amended (the “ADA”), in connection with Orion’s employee wellness program. Under this program, participants received a 100 percent subsidy on their health plan premiums while non-participants were required to pay the full cost. The EEOC charged that the Orion wellness program was not voluntary, and thus violated the ADA, because (1) it imposed a financial penalty for non-participation and (2) the sole non-participant was terminated from employment shortly after declining to participate in the program. EEOC guidance states that a wellness program is “voluntary” provided that participation is not required and the employer does not “penalize” employees who do not participate. However, the EEOC has not issued formal guidance regarding whether or to what extent an employer may offer financial incentives… Continue Reading

Hacienda Issues Guidance on Tax Prepayment Window for Puerto Rico Retirement Plans

In Administrative Determination No. 14-16, Hacienda clarified certain ambiguities in the recently enacted Tax System Adjustment Act, which amended the Puerto Rico Internal Revenue Code of 2011 (the “PR Code”) to provide a window, from July 1, 2014 to October 31, 2014, for the prepayment of Puerto Rico income taxes on all or part of a participant’s retirement plan account balance or accrued benefits. During the window, the tax rate on prepayments is reduced to 8 percent for plans qualified under the PR Code and to 15 percent for non-qualified plans. Prepayments may be made with the participant’s own funds or with funds distributed from the plan. Although a plan is not required to permit distributions for tax prepayments, a plan amendment may be needed if the plan chooses to permit such distributions. Such an amendment is not a qualifying amendment and need not be filed with Hacienda. Administrative Determination… Continue Reading

Certain Puerto Rico Retirement Plans May Participate in 81-100 Group Trusts

In Rev. Rul. 2014-24, the IRS recently announced that certain Puerto Rico retirement plans that are qualified only under the PR Code are eligible to participate in group trusts described in Rev. Rul. 81-100 (“81-100 Group Trusts”). In general, an 81-100 Group Trust is a trust in which qualified retirement plans and individual retirement accounts pool their assets for investment purposes, if certain requirements are met. To be eligible to participate in an 81-100 Group Trust, a Puerto Rico retirement plan must meet the plan qualification requirements of Section 1081.1 of the PR Code. Rev. Rul. 2014-24 is available here.

ISS Launches New Equity Plan Data Verification Portal

Institutional Shareholder Services Inc. (“ISS”) recently announced the launch of a new Equity Plan Data Verification portal that covers information on equity-based compensation plans that U.S. companies submit for approval by shareholders. Companies may now access the portal to review and update key datapoints that are evaluated by ISS before ISS issues its proxy recommendation. Companies planning to feature an equity plan on their proxy ballot, and will file their definitive proxy materials with the SEC after September 8, 2014, are eligible to participate in Equity Plan Data Verification. Any such company is encouraged to register with ISS to receive notification of the availability of company data, and upon notification, the company will have two business days to verify the data and/or request modifications. More information, including FAQs, can be found here.

New Guidance on Locating Missing Participants of Terminated Defined Contribution Plans

The Department of Labor issued new guidance to help plan administrators locate missing participants and distribute their benefits following a defined contribution plan’s termination. The guidance sets forth certain “required steps,” such as using certified mail and free Internet search tools, and states that distributing missing participant benefits into individual retirement plans is the preferred distribution option. Transferring the benefits to a federally insured bank account or state unclaimed property fund may be permissible based on particular facts and circumstances, but 100 percent income tax withholding would violate fiduciary requirements and is not an option. Field Assistance Bulletin No. 2014-01 can be found here.

Fourth Circuit Rejects “Could Have” Standard for Determining Fiduciary Breach

The U.S. Court of Appeals for the Fourth Circuit held that the plan administrator failed to follow a prudent process when it decided to forcibly divest all stock of a predecessor employer while such stock was priced at an all-time low.  As a result, the burden shifted to the administrator to prove that despite its imprudent decision-making process, its ultimate investment decision was “objectively prudent.”  The lower court ruled the decision was objectively prudent because a hypothetical prudent fiduciary “could have” made the same decision after performing a proper investigation.  Rejecting this standard for determining loss causation, the Fourth Circuit held that the proper standard is whether a reasonable fiduciary “would have” made the same decision.  Tatum v. RJR Pension Investment Committee, No. 13-1360 (4th Cir. Aug. 4, 2014).

IRS Adjusts Coverage Affordability Percentage for Tax Credit (Not Safe Harbor) Purposes

In recently released Revenue Procedure 2014-37 (the “Rev. Proc.”), the IRS adjusted the contribution percentage, from 9.5 percent to 9.56 percent, to be used in plan years beginning after calendar year 2014 to determine whether an individual is eligible for affordable employer-sponsored minimum essential coverage (“ER MEC”) for purposes of the Affordable Care Act’s premium tax credit (the “Tax Credit”). An individual is not treated as eligible for ER MEC with respect to the Tax Credit if the required contribution for plan coverage exceeds the applicable percentage of the taxpayer’s “household income.” Plan sponsors should be aware that the adjustment of the contribution percentage under the Rev. Proc. is limited to the Tax Credit; it does not necessarily apply to the affordability safe harbors for plan sponsors as provided by the final “play-or-pay” regulations under the Affordable Care Act, which specifically reference a contribution percentage of 9.5 percent as applied… Continue Reading

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